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Viewpoints: The 2013 Prognosis for Manufacturing is Strong

Chad MoutrayChief Economist The National Association of Manufacturerswww.nam.org

Amidst all of the conversation about the fiscal cliff, slowing global growth and other economic anxieties, it is easy to overlook that the long-term prognosis for the manufacturing sector remains strong. Some of 2012’s economic bright spots should continue into 2013, and manufacturers will benefit.

HousingAlthough the housing market remains well below its peak levels from before the bubble burst in 2006, the sector has grown slowly but steadily over the past year and a half. From 581,000 annualized units in August 2011, housing starts have soared to almost 900,000 units. Forecasts for 2013 are approaching 1 million units for the first time since 2008.

Several trends have helped prop up construction and real estate sales. Some regions are starting to work through excess inventory, and finances have improved for some buyers (even as standards have toughened). In addition, the Federal Reserve Board’s expansionary policies have pushed interest rates to all-time lows. According to Freddie Mac, the average 30-year mortgage rate is currently 3.34%—a far cry from the averages of 6.03%, 5.04%, 4.69% and 4.45% from 2008 to 2011, respectively.

Motor VehiclesThe average car on the road is now 11 years old. The forecast is for annual vehicle sales to rise to over 15 million in 2013, and some are predicting even greater gains to more than 16 million. With more Americans trading in their older vehicles for newer ones, manufacturers with close ties to the industry will continue to benefit. Lower interest rates are helpful for auto sales, too.

We have already seen positive impacts from stronger motor vehicle sales. Industrial production for the sector has increased 10.2% over the past year (24.3% over the past two years). It is not surprising that the auto and parts sector has added 122,200 workers since the end of 2009, helping to propel Michigan and other Rust Belt states into the lead for manufacturing employment growth.

ExportsManufactured goods exports are expected to top $1.3 trillion in 2012, an all-time high. Ten years ago, the US exported $646.7 billion in manufactured goods, illustrating significant growth in overseas markets. The top products for export include transportation equipment ($182.3 billion in the first 9 months of 2012), computers and electronics products ($151.5 billion), chemicals ($150.0 billion) and non-electrical machinery ($126.0 billion). These same sectors have experienced the fastest growth in output and employment over the past few years, and that will continue.

Even with slowing global growth, year-to-date manufactured goods exports through September 2012 were 6.6% higher than during the same nine months in 2011. While this represents a much slower pace than in the prior two years, it does indicate that manufacturers are exploring new markets. In the most recent NAM/IndustryWeek Survey of Manufacturers, more than 40% were looking to trade as a top strategy for growing their companies.

Energy CostsEnergy has become a competitive advantage for manufacturers in the US. Research suggests that while tax and regulatory policies provide a 20% structural disadvantage for many of our nation’s manufacturers, industrial energy costs in the US are lower than in our largest trading partners. The increased exploration of shale has been described as a “game changer” for our companies and carries the potential to reduce our dependence on foreign energy sources.

A PwC study estimates that robust development of the nation’s shale gas resources could create 1 million new manufacturing jobs by 2025. Additional supplies of shale will help lower feedstock and energy costs, benefitting all segments of the business community. The net result will be increased competitiveness for our nation’s manufacturers and a welcome burst of new activity for the still-depressed construction sector.

This is just a partial list of reasons to be optimistic about US manufacturing. Productivity gains, continued investments in research and development and a renewed emphasis on workforce training also should provide hope for manufacturers for 2013 and beyond. ME

This article was originally published in the January 2013 issue of Manufacturing Engineering. A PDF of the original article can be found here.